“Through the grace of Allah, and then with wise leadership, continuous efforts and ongoing conversations since dawn on Friday, we now announce the conclusion of the historic agreement to reduce OPEC members` production by about 10 million barrels of oil per day from May 1, 2020,” Dr. al-Fadhel wrote in a tweet. What is striking is that the United Arab Emirates, long Saudi Arabia`s closest ally, the de facto head of OPEC, has proved difficult to politicize. Analysts say the UAE`s ambitious leaders are irritated on several issues, including a tight quota that sharply criticizes their plans for a significant increase in oil production and Saudi-Russian supremacy in oil decision-making in recent years. “Despite the economic and financial circumstances facing Iraq, the country maintains the agreement,” OPEC spokesman Assem Jihad, a spokesman for Iraq`s oil ministry, said on Saturday. In recent weeks, international oil prices have recovered and have risen by about 25% since the beginning of last month. Asian economies recovered strongly and stimulated oil demand. Meanwhile, oil investors are banking on future demand growth elsewhere after a series of promising milestones hit by several Covid 19 vaccines under development. This week, the UK approved one for the emergency response, the West`s first mass vaccination offensive.
Under the agreement, members of the Organization of Petroleum Exporting Countries, along with Russia and other countries, will increase production by 500,000 barrels per day in January and possibly a similar amount in the following months. The increase, less than 1% of the global oil market, comes at a time when demand is still under pressure from the coronavirus pandemic. The price fight has also allowed major listed oil companies, such as Exxon Mobil Corp. and Royal Dutch Shell PLC, to be at a low level, causing heavy losses and job losses. Shell and BP PLC have cut their dividends for the first time in years to obtain cash. Chevron Corp. said Thursday that it is joining Denern in cutting spending. Oil ministers from the Organization of petroleum exporting countries and other Russian-led producers met via video conference on Saturday and agreed to continue to cut 9.7 million barrels per day – or about 10 percent of world production in normal times – until July, according to an OPEC press release.
The realization that the dark cuts are expected to last a month or more shows that, despite the recent surge in oil prices, major producers continue to fear that the oil market will disintegrate again. The latest news about the effectiveness of coronavirus vaccines, which have pushed oil prices to their highest level since their fall in April, may have made it more difficult to reach an agreement. In response to these higher prices, some oil producers saw less need to maintain supply and wanted to increase pumps to try to improve nearly a year with gloomy oil yields. The agreement marks a compromise after sharp differences earlier this week among a group of producers who for months have been relatively concerted and have agreed to sharply cut production in order to stabilize oil markets.